Safeguard your business with this one action
As any business owner knows, the concept of trust in customer relationships is vital to your marketing strategy in terms of building your brand.
While they need to be able to trust your company enough to choose your products or services at the very outset, you need to be able to trust them when offering to provide those products or services on credit terms.
Sometimes, placing too much trust in your customers may harm your business in the longer term, just as Andrew Dark, Founder of Custom Planet, found after he began the business offering 30-day payment terms to all customers:
“We were owed so much money that it crippled our cash flow and nearly put us out of business,” he told Real Business. “Things became really serious when some of the companies that owed us money went bust and didn’t pay at all.”
The impact this had eventually caused cash flow to dry up, rendering the business unable to pay suppliers, in addition to wage cuts and a freeze in hiring.
Credit checking customers is a commonly used method in order to give businesses a better idea when deciding whether to trust your customer with credit terms, but when and how often should they be used?
Regular credit checks
When taking on a new contract or agreeing to supply a new customer with longer payment terms, a credit check at this stage is good practice for any business and is usually a pre-requisite to supply. But, when the customer makes another order a few weeks or months down the line, it’s important to remember that their credit rating may have changed, given it is in a constant state of flux.
Credit checking them regularly will therefore ensure you are up to date with all the facts surrounding your customers, giving you confidence in your decision over whether to trust and supply them on credit terms, offer shorter terms, or perhaps even refuse to supply altogether.
They do this by highlighting any potential threats, such as whether your customer has any County Court Judgments in place since you began supplying them, as well as their credit rating, giving you a good indicator of how they continue to perform financially.
This will assist with the avoidance of late payment and bad debt, ensuring your business does not suffer from the harsh reality and negative effects late payment can have on your cash flow.
That’s why, particularly in the current unstable economic climate, performing regular credit checks will help to protect your business’s finances and ensure you don’t fall foul of the negative side of trust. All it can take is a single late payment for your customer’s cash flow to suffer, which could get passed on to you, so make sure you keep a close eye on your customers to safeguard your own position.